A measure of sensitivity (i.e., volatility) of a stock or a mutual fund to movements in the overall stock market. The beta for the markets is considered to be 1. A fund that mirrors the market, such as an index fund, would also have a beta of 1. Funds or stocks with a beta greater than 1 are more volatile than the market and are therefore riskier. A beta less than 1 is not as volatile and can be expected to rise and fall by less than the overall market.
What is Beta?
Beta is a measure of a stock’s volatility concerning the overall market. It is a statistical measure used to assess the risk of an investment, and investors often use it to evaluate and compare the potential returns of different stocks. A beta of 1.0 means that a stock’s price will move with the market, while a beta less than 1.0 means that a stock is less volatile than the market, and a beta greater than 1.0 means that a stock is more volatile than the market. For example, a stock with a beta of 1.5 is expected to be 50% more volatile than the market.
Beta is calculated using historical data and can be used to estimate a stock’s expected returns and future volatility. However, beta does not guarantee future performance and should be used as one of several factors when evaluating an investment. It is important to note that beta can change over time as a company’s financial and operating conditions change and the overall market conditions change. Therefore, investors should regularly review the beta of their investments and make adjustments to their portfolios as needed.
